Saturday, May 4, 2013

Successful Contract Renewal Strategies

If you’ve been selling for any period of time, you’ve learned that contract renewals, even with your very best customers, are far from automatic. That’s why you should develop a renewal strategy that’s as complete as your plan for selling a new major account.

First, when you start working on that renewal, try to move the decision date earlier every time. There’s a real pragmatic defensive reason for this. Just as you monitor your competition, they’re constantly monitoring your accounts, too. And they’re probably just waiting for the opportunity to get in there with your biggest account at renewal time. Can’t you just see them lurking in the shadows?

The best way to foil their attack is to preclude it by locking up the renewal early. If you wait for the prospect to tell you it’s time for renewal, it’s too late. You should be the proactive party in the transaction.

Do your estimate (or re-estimate) of their spending potential, study their needs as you now know them, and put that proposal for the renewal on the table as early as you can. You’ll stand a good chance of getting an early renewal at the best and will have set the standards for the competition at the worst. It’s generally better to be defending your position than assaulting someone else’s.

And when renewal time rolls around, make sure you set your sights high enough. Don’t let your expectations be limited by the size of the last contract. Human beings have a bad tendency to categorize each other. In sales, you tend to sort your current customers into boxes—and the size of the box is not based on their total potential as a revenue source but on what they spent with you the first time you sold them.

This system of classification is even worse when you take over an account that had been handled by someone else, like your predecessor in the territory. There’s a particular danger of improper classification, by the way, with some computerized sales automation systems since they can’t take into account what should be, only what has been. And many time management systems  encourage you to rank your prospects by dollar volume and allocate your time accordingly, so the error can be compounded.

If you sort your customers into boxes based on their previous spending with your company, you’re putting yourself into a box, too. And that box limits the potential for growth in your commission check. You should have no more pre-conceived ideas about your current customers than you do about new prospects. You must not let past spending be the sole determinant of the size of future proposals.

Remember, too, that the stereotyping process works both ways. Just as you’ve classified the account based on its past spending, the buyer has probably classified you based on the size of the proposals you have offered. If you’ve been selling them small deals, you’re grouped (mentally at least) as an unimportant vendor. If the amount they spend with you “moves the needle” on their income statement, you’ll be in a much larger box.

I recommend periodic reviews of current account potential along the lines of the initial research on prospective new accounts described in The Dynamic Manager’s Guide To Sales Techniques. There’s no law that says you can’t do that same kind of research into your current accounts. In fact, you would be doing the customer a real service if you took the time to analyze them that way.

Start with a fresh needs analysis as if you were getting ready to pitch a new account—then add the knowledge you’ve gained during the term of the current contract. Has the competitive scene changed? Has the customer made any changes in their business? The list of questions is endless but they should all give you a clearer map of the route to a sizable renewal.

Then look outside the box and estimate their revenue potential. If there’s a discrepancy between the estimate and their actual spending, you may have identified an opportunity.

Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for business owners and managers in the Dynamic Manager's Guides and Handbooks, a series of how-to books about marketing and advertising, sales techniques, and management strategy.

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